The rise of private label

As retailers discover they earn better margins by filling bottles under their own brand names, private label is set to rise. Hans Kraak reports.

Brian Sharoff, Jacqueline Snoeker
Brian Sharoff, Jacqueline Snoeker

Brian Sharoff is convinced private label wines – where retailers create their own range – will become even more important for retail. “We have seen some important changes in the last years,” the president of the Private Label Manufacturers Association says: “the percentage of wine being sold in supermarkets is on the rise.” He points to data from Germany, the UK and France as proof. “More than half of the wine sales [there] take place in supermarkets. As retailers become as skilful with private label wines as they are with food, sales of these wines can only rise.” 

Sharoff adds that wine is still a cluttered category. “For most people who go to the shelves, wine choice is not that easy. If you have a favourite brand like Mondavi, you can find it. After that it becomes more difficult,” he says. “But when consumers trust home brands from retailers like Aldi, Lidl, Tesco, Costco or Casino, as we know consumers do from other private label products, than choosing wine suddenly becomes simpler.” Not only that, but “as the retailers acquire big volumes, they can offer good value for money. It’s for the consumer to decide whether a Barolo of €10.00 to €15.00 ($11.60 to $17.40) is as worthwhile as a Barolo of €40.00.”

For retailers, the benefits of private label wines are obvious: they can offer a range of wines, under their own names, while completely controlling pricing and margins. “If a retailer can provide good Barolos or Merlots under the same family of names, it is a powerful thing in marketing,” says Sharoff, because if customers find everything they need on the shelf, they won’t go elsewhere. And one of the most attractive things about private label is that its image is changing. “Private label is no longer a two euro a bottle wine market for the consumer. It gives retailers the opportunity to appeal to different customers. The market has changed.”

Dutch wine consultant Jacqueline Snoeker agrees that “consumer trust in private label is a strong asset. If the olive oil is of a good price and quality, why shouldn’t the wine be?” She says private label makes it easier for consumers to choose, especially as the quality has risen. “I think in general private label wines won’t be perceived as the best and most expensive wines. These are accessible products for a big audience, not extremely special. Moreover, you have to take into account that there is not one type of customer. Some are experienced and have a huge interest in wines, while others are glad to be unburdened while purchasing.”

However, Snoeker says that the demand for private label is not the same everywhere. “Where the market share of private label is still low there can be further growth, like in the United States, but in the Netherlands for instance the market share is already quite big, so I do not expect the growth will be immense here,” she says.” It depends on the situation in different countries. In southern Europe, domestic wine producers are easy to find in local stores, like in Italy where there are still a lot of small grocery shops. Many producers don’t need or want to sell their wines under a private label.” 

More traditional markets aside, the share of private label is growing. According to the International Bulk Wine and Spirits Show, private label has risen to between 8% and 10% of all domestic wine sales over the past decade, including 17% of total wine sales for the big retail chains. In Britain, private label wines account for almost 30% of all domestic wine sales, while in other parts of Europe, the market share is closer to 50%.

Who produces for private label?

What’s the benefit in private label for a producer? Henrico van Lammeren is CEO of Vinites in Haarlem, a top 10 Dutch importer, says larger producers will benefit most. “As importers we see chances on the market for wine from producers from branded houses,” he says. “We sometimes try to convince them to go into private label as well. The opportunity to sell bigger quantities via supermarkets without the cost of all the marketing or bottling might be very attractive.” Whether they ultimately do private labels or not depends on the mission of the company, price policy, stock and distribution. “If you want to go into it, you will need the means and structure in the company to deliver big volumes, otherwise you can’t cope with the demand from retailers.”

How retailers source their private label wines depends on the retailer. Aldi and Lidl almost exclusively write tenders for a certain type and amount of wine, while others more often write tenders in combination with purchases based on the advice of importers or agents. Says van Lammeren: “It happens we see a wine on the shelf of supermarkets with a high price for consumers on it. If we count the price back to the purchase price, we sometimes can offer the supermarket a wine of the same quality for a better price. If you are a renowned importer, supermarkets might be willing to negotiate with you.”

Snoeker says that suppliers need to approach the market professionally. “A professional buyer won’t often meet with producers who just want to sell their (last) wine out of stock for private label. If they want to go into the private label market they have to be very consistent: retailers and customers demand stability.” Anyone with a one-off oversupply is better off going to the bulk market, she says. Van Lammeren agrees that’s also best for smaller quantities: “Producers can sell it on the bulk market place if they want to get rid of it.”

However, would-be suppliers need to be aware that private label is becoming a tough market to enter, particularly in Europe. “In the Netherlands there is no growth in the market for private label now, it’s flat,” says van Lammeren.  

 

Private label in action

Filippo D’Alleva is the general director of one of the biggest cooperatives in Abruzzo, Citra Vini S.C. His company processes the grapes of about 3,000 farmers, working more than 6,000ha in the province of Chieti. Citra produces about 220,000hl of wine yearly, 67% of which is for export, and 35% of which goes to private label. Citra has had its own private label since it was founded in 1973; today, however, buyers can also put their own labels on wine produced by Citra. Buyers can choose the wine style, the varietal and the category. “For us, private label is important for the future market, because it means we can get a big distribution,” says D’Alleva, adding that the company also sells to small shops in Italy. “How a private label relationship works out depends on the country, the agents, the importers or the distributers we dealt with.” D’Alleva realises, of course, that Citra has more marketing power when it has his own brand name on the bottle, but it can also get recognition by being mentioned on the label of a private label wine. “When you have a good relationship with your partners, you will also get a good visibility on the market.”

For D’Alleva, the quality of his wines is fundamental in every relationship and he says that the days when private label wines were of lesser quality are past. “Private label wines are now even more controlled than wines sold from an individual producer. We, and teams of the buyers themselves, execute separate quality controls. Of course private label buyers still search value for money, but in the end the market decides the price.”
 

More private label, less shelf space

Nielsen data released by the PLMA shows that private label across all categories, not just wine, has reached an all-time high. In Germany, it increased by more than 45%, while other mature markets like the Netherlands and Belgium also saw growth. In the UK, where “supermarkets are investing in their private label programmes to meet competition from the discounters”, market share climbed to more than 46%.

“In Scandinavia, there were gains in Sweden, Norway and Finland, with market share in all three countries above 30%,” said the statement. “Private label share also was at 30% or above in four central and eastern European countries – Poland, Hungary, Czech Republic and Slovakia – led by Hungary climbing to 34%.”

While this is good news for producers with excess wine to offload, it also suggests that competition for shelf space is going to become even more difficult. As retailers and HoReCa turn further towards own brands, the wine industry will have to think more about direct-to-consumer and wine tourism as paths to market. FC
 

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